Inverters are critical to energy storage operation. As the “brains” of a storage project, inverters manage, optimize and ultimately drive project performance and returns. Yet the landscape for energy storage inverters remains nascent and fragmented, full of new products with varying applications and functionality.

In a new report, The Energy Storage Inverter Landscape, we highlight the biggest challenges for storage inverter manufacturers, identify characteristics of successful vendors, and note key trends in the growing market.

Here are five of the key trends shaping the energy storage inverter market.

Market fragmentation

The vendor landscape will remain extremely fragmented in the coming years. Most inverter manufacturers target just one or two applications, and only a few have a full range of energy storage offerings. As the market matures, we expect the landscape to concentrate and consolidate within each market segment.

Eventually, well-positioned segment leaders will target further growth by layering additional applications and entering new market segments. The resulting competition will drive consolidation in the overall storage inverter landscape.

AC-coupled architectures for solar-plus-storage

Multi-port hybrid inverters for solar-plus-storage will continue to hit the market; however, their near-term use will be limited. Hybrid, direct-current coupled inverters can lower balance-of-systems costs by eliminating components, but they limit design flexibility and are not best suited to retrofits.

In the long term, hybrid inverters will be of most use in residential systems where standard designs can be reproduced at scale and reduce overall costs. However, as the market grows, the vast majority of solar-plus-storage systems will be alternating-current coupled and contain distinct inverters for solar and battery storage.

Partnerships are key to scaling

Partnerships will be the primary path to battery and inverter product standardization.

Unlike PV modules, batteries vary significantly by chemistry and intended application. Battery inverter communication standards development is underway by organizations such as MESA and SunSpec, but these efforts do not normalize battery characteristics for universal application. Thus, as the energy storage industry looks to scale, battery and inverter partnerships will be critical to standardizing system components.

Integrated solutions

Inverter vendors will continue to develop integrated energy storage solutions. While many third-party integrators have emerged to integrate inverters and batteries into storage systems, many inverter vendors have taken on this role as well.

There are two primary aspects to storage integration: hardware and software. Battery integration is the lowest-hanging fruit, but given limited value-add for hardware integration and the strict control requirements of storage, most inverter vendors developing integrated products will focus on software and energy storage system management rather than on component bundling.

Falling prices

Storage inverter pricing will fall rapidly over the next several years. Most inverter customers currently prioritize features over cost; however, pricing has tracked downward toward PV inverter pricing levels over the past year.

Storage inverter prices will always be more expensive than PV inverters due to the electrical equipment needed for bidirectionality. Because of their current price premium and ongoing standardization, we expect energy storage inverter prices to fall between 12 and 15 percent per year over the next five years, compared to likely price declines of 10 to 12 percent per year in the PV inverter market over that time.